With only a handful of pilot projects in operation around the world, Carbon Capture and Storage (CCS) has not played a significant role in reducing carbon dioxide emissions. CCS has, however, been valuable as a fiction for all those who want, for whatever reason, to avoid dealing explicitly with the fact that stabilizing the global climate will require ending the use of fossil fuels, and particularly coal. For example, rather than prohibiting new coal-fired power stations, the US EPA has proposed that only power stations equipped with CCS technology should be permitted. Since new coal stations are mostly uneconomic even without CCS, this amounts to a ban, but can be justified simply as requiring best practice.

It now appears that this fiction has outlived its usefulness. Recent reports suggest that the EPA will drop the CCS requirement in favour of the weaker requirement that all new coal-fired stations should use supercritical combustion. There are two main reasons for this

(a) The requirement might not stand up to legal challenge on the basis that CCS is not a feasible technology
(b) No new coal plants are likely to be built anyway

There’s a push within the ALP to remove the party’s long-standing socialist objective, which states

The Australian Labor Party is a democratic socialist party and has the objective of the democratic socialisation of industry, production, distribution and exchange, to the extent necessary to eliminate exploitation and other anti-social features in these fields.

Then follows a long list of commitments, notably including
(i) the restoration and maintenance of full employment;
(j) the abolition of poverty, and the achievement of greater equality in the distribution of income, wealth and opportunity; and
(k) social justice and equality for individuals, the family and all social units, and the elimination of exploitation in the home

I’m ambivalent about this, both as as regards substance and timing. When I started this blog, I made the decision to describe myself as a social democrat rather than a democratic socialist. In 2006, I gave the following explanation, in a comment

I prefer “social democratic” because it clearly refers to the set of policies implemented and advocated by social democrats in the second half of the 20th century, including a mixed economy, an active welfare state, government responsibility for full employment and so on.

By contrast, socialism is less well defined. It can mean comprehensive public ownership, which I don’t support, or it can be just a general statement of values and aspirations, consistent with social democracy.

So, if the change was simply to replace “democratic socialist” with “social democratic”, and to give a description of goals consistent with that, I’d have no problem. But let’s look at the text proposed by NSW Labor Leader Luke Foley[1]

The Australian Labor Party has as its objective the achievement of a just and equitable society where every person has the opportunity to realise their potential.

“We believe in an active role for government, and the operation of competitive markets, in order to create opportunities for all Australians, so that every person will have the freedom to pursue their wellbeing, in co-operation with their fellow citizens, free from exploitation and discrimination”.

Foley’s further comments make no reference to full employment, equality, poverty or any other social democratic concerns. He goes on to say

We understand that competitive markets are best placed to deliver the economic growth that the people we represent rely on.

We also know that regulation and redistribution are necessary to correct market failures, to ensure dignity and opportunity for all Australians.

Is there anything here that Tony Abbott, or even Joe Hockey, could disagree with?

A few months ago, I was a bit surprised to read a report put out by the Pew Research Center predicting that the proportion of the world population without a religious affiliation would decline sharply by 2050. The basic argument sounds plausible: an increase in the unaffiliated proportion of the population within countries will be more than offset by faster population growth in countries with higher rates of affiliation. The main points are presented in a peer-reviewed article in the journal Demographic Research, which suggests the analysis should be solid.

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

Maybe it’s my chronic over-optimism, but it seems to me as if there has been a sudden change in the long-sputtering debate about taxation in Australia. Until a few weeks ago, “tax reform” was, as it had long been, code a “tax mix switch” which in turn was code for “tax food and use the proceeds to cut the company tax rate or the top marginal rate of taxation”. Joe Hockey was still pushing the second part of this package only a week ago.

But the reports coming out of the recent COAG summit seemed to convey a general acceptance that more tax revenue is needed to fund health expenditure in particular. The two top options were an increase in the rate of GST or an increase in the Medicare levy, with little mention of “base broadening” (more code for taxing food).

Meanwhile, Labor has been talking about a Buffett tax, that is, a minimum rate of tax levied on gross incomes, regardless of deductions. And, while the LNP still assumes that it can win by running against a “carbon tax”, that belief seems to have come unmoored from any general theoretical viewpoint. How can Abbott run against a “great big new tax on everything”, if he is happy to discuss a 50 per cent increase in our existing “great big tax on everything”, the GST?

I’m not clear what has happened to bring this about, or whether I’m misreading the signals. But it certainly looks to me as if the great political taboo against even mentioning higher taxes has been broken.

First, it’s striking to observe that no one has popped up to claim that the target is unachievable or that an electricity supply system with 50 per cent renewables will be unworkable. The strongest claim I could find in this article describing coal lobby responses is someone from the Minerals Council of Australia saying that the target is “technically questionable” which could mean anything. By contrast, until very recently, sites like Brave New Climate were full of amateur experts claiming to demonstrate the impossibility of such a goal.

Second, it’s clear that the economic impact will be minuscule. Owners of coal-fired power stations (if they are not compensated, as they should not be) will bear most of the costs. Electricity prices may rise a little compared to the current RET, but will probably be no higher than if we had stayed with a coal-based system. Perhaps this will help to convince those who think that decarbonization of the economy as a whole must have a massive cost impact, but, based on past experience, I can’t see this happening.

Third, as argued in the paper mentioned in the title, an expanded RET may not be the best way to achieve climate goals, but, if the carbon price is below the appropriate level ($50/tonne or more), a RET for the electricity sector is an appropriate policy. The main problem is that the RET doesn’t discriminate between different fossil fuels. A RET, combined with incentives to close down brown coal power stations, would have much the same effects as an adequate carbon price, and is politically much easier to do.

If there’s to be any chance of stabilizing the global climate, a large proportion of existing reserves of coal will need to be left in the ground. The Galilee Basin, estimated to contain 27 billion tonnes of coal, enough to raise atmospheric concentrations of CO2 by several parts per million on its own, is arguably the biggest test case in the world right now. Fortunately, the latest news is good.

Adani is still blaming regulatory delays, but this seems increasingly implausible. The sacking of the engineering teams will set the project back many months, if not years, and burning your primary equity partner doesn’t seem like a sensible response to regulatory problems. At this point, I’d say the strategy is to obtain and bank the regulatory approvals then hope that the price of coal increases in the future. This seems unlikely, given the collapse of demand in the US, declining demand in China and increasing Indian focus on renewables, in which Adani itself is a big player.

Moreover, with every year that passes, the obstacles to coal projects of any kind get bigger. Most international development banks will no longer lend to such projects, global banks are under similar pressure and institutional equity investors are being pushed to divest. It’s unlikely that the proponents of new coal projects in Australia will ever again see a government as favorable as the Abbott government, so if they can’t succeed now, they will probably never do so.

I’m now coming up to (what I hope will be) the most challenging part of my book-in-progress, Economics in Two Lessons. The core theoretical point the first part of the book (Lesson 1) is that, under a set of ideal assumptions, competitive equilibrium prices both reflect and determine the opportunity costs faced by consumers and produces. This means that there is no way to rearrange consumption to make someone better off unless someone else is made worse off. (I’ve already mentioned my reasons for avoiding the term “Pareto-optimal” in this context.

What I’m trying to do here is to spell out the logic underlying these results in a way that foreshadows the discussion of market failure and income distribution, in Lesson 2, but still shows the power of market mechanisms. I’ll probably need a few goes at this, and this is my first try. Critical comments on everything from the underlying theory to editorial nitpicks are welcome. Sincere praise is also welcome of course, but constructive criticism is best of all.Read more…

I’m sure I’m not the only person who’s been thinking about the words Thucydides assigns to the Athenians in the Melian dialogue

The strong do as they will and the weak suffer what they must

And I knew the immediate context. Militarily powerful Athenians demanded that the inhabitants of neutral Melos surrender their city and pay tribute. When the Melians refused, Athens invaded, slaughtered the men and enslaved the women and children.

I didn’t however, have any broader context in which to place this episode, even though the information is readily available on Wikipedia for example, which is my source here (apologies in advance to any actual experts for inaccuracies). The story begins with the formation of the Delian League, an expression of Greek unity in the war against Persia. The Athenians used the League to supplant Sparta as the hegemon of Greece, and then to oppress the other members, leading to a series of attempted defections. In Thucydides words

Of all the causes of defection, that connected with arrears of tribute and vessels, and with failure of service, was the chief; for the Athenians were very severe and exacting, and made themselves offensive by applying the screw of necessity

Eventually, this policy lead to the outbreak of war with the Spartan-led Pelopennesian League (this war was Thucydides’ subject). The war on Melos took place during a brief period of peace about half way through the war. The war ended with Athens being utterly defeated. Only the mercy of the Spartans prevented the Athenians sharing the fate they had meted out to the Melians a decade earlier, as Sparta’s allies demanded.

Rather than extract analogies to current events, I’d like to observe that the historical setting suggests a very different reading of the dialogue to that commonly seen today. In most of the contemporary discussions I’ve read, the Athenian side of the dialogue is presented as embodying the remorseless logic of power politics. But in the light of the outcome (well known to his intended readers), it seems to me Thucydides is better read as showing the Athenians as subject to the kind of hubris that demands, and inevitably receives, punishment. By contrast, while the Melians made a bad bet in resisting, their arguments are entirely sound, and should have been convincing to a rational hegemon.

Obviously, my analysis of the Greek debt crisis was wrong. My crucial error was the assumption that, having held the referendum and being faced with an unacceptable offer, Tsipras would choose exit from the euro rather than capitulation. Judging by this interview with Varoufakis (H/T Chris), that’s what Tsipras thought too, until, too late, Varoufakis told him it couldn’t be done. Certainly Tsipras’ actions were consistent with that interpretation.

Syriza has clearly been beaten. But I doubt that the outcome will work well for the other side in the long run. (Nearly) everyone understands that the debt can’t ultimately be repaid. But the German voting public hasn’t been told that. A deal that had some kind of quasi-automatic mechanism for writing down the outstanding balance (for example, by multiplying up the proceeds from asset sales) might have got around this problem. As it is, an explicit writedown will be needed at some point, presumably after Syriza has been forced out of office. That will be incredibly unpopular in Germany, while making clear to everyone else the locus of sovereignty in the post-crisis EU.

Update Commenters generally disagree with my take on the Varoufakis interview. I’m not wedded to it. The crucial point is that exit from the euro is extremely difficult, and that this fact will be used to punish any eurozone country that tries to resist the controlling powers.

In this section, I’m working on Lesson 1, leading up to the point (my restatement of what’s usually called the First Fundamental Theorem of Welfare Economics) that an ideal competitive equilibrium is one in which there are no unexploited potential gains from technical improvements or mutually beneficial exchange. For reasons I’ve spelt out already I don’t want to use the term “Pareto-optimal” to talk about this. I also want to confine “efficient” to its normal meaning of “technically efficient” and avoid the common economist practice of extending this to cover various definitions of “market efficiency”. So, I’m talking about “free lunches” or, more formally, benefits with no opportunity cost.

In Lesson 2, I’ll be looking, among other things, at the Second Welfare Theorem, which says any outcome with no free lunches corresponds to a particular initial allocation of property rights, broadly defined to include taxation obligations and entitlements of all kinds.

I’ve been at the Australian Conference of Economists for the last few days. Today we had presentations from the Queensland Treasurer, Curtis Pitt, who is about to bring down his first budget, and from Commonwealth Treasury Secretary, John Fraser.

Curtis Pitt’s big announcement was a rearrangement of debt and equity in Government Owned Corporations, increasing their borrowing and transferring the resulting equity to the general government balance sheet. The result is a $4 billion reduction in general government debt, part of a program to bring the debt/revenue ratio down to around 70 per cent.

A transfer like this doesn’t make any difference to the state’s net financial position. Bu it makes the point that publicly owned assets are assets, not liabilities, and the fact that we own them makes the state’s position stronger. As long as the higher gearing ratio is commercially sensible and the debt can be serviced out of GOC earnings, there’s no reason not to use this to improve measures of general government debt.

Privatisation also makes no difference to the net position, assuming assets are sold at their value in continued public ownership, and the proceeds are used to pay down debt. However, the StrongChoices plan put by the LNP at the last election, would have dissipated around half of the sale proceeds on pork-barrel projects (to be delivered only if the LNP won the seat in question). So, compared to the alternative, Labor’s management is fiscally responsible.

The only measure that is unaffected by balance sheet reshuffles (at least if it is correctly measured) is net worth, and the only way to increase net worth is for income (revenue and asset earnings) to exceed expenditure.

John Fraser’s performance was as expected, which is to say, deeply disappointing. As a colleague sitting at our table remarked, he came across as a politician not a Treasury secretary. Fraser repeated the Henry Review’s criticism of stamp duties and the case for not taxing mobile capital. But when I asked if that meant he supported land taxes, he squibbed the question, waffling on about what a great group of officials he was working with in the states.

A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).

I wrote this for The Guardian and Crooked Timber in response to the Greek referendum result.

Lots of people have raised the suggestion of applying game theory to the the Greek debt crisis. I haven’t attempted this, reflecting my general scepticism about game theory in the absence of a well-defined strategy space. But now the Greek government and public have made, what is, in effect, a final move. In view of the No vote, Syriza can’t accept a deal that doesn’t include an explicit debt write-off or one that obviously crosses its stated red lines. Within those parameters, its clearly eager for a face-saving compromise.

For the other side (effectively the Troika and the German government), since Syriza’s move has already been made, the problem has now been reduced to one of decision under uncertainty, which is something I am comfortable with. More precisely, it’s a choice between a “safe” option, with an outcome that is fairly predictable, and a “risky” option where the outcome is uncertain.Read more…

I didn’t take part in the book event on Danielle Allen Our Declaration, except as a commenter. But, as it happened, I converged on some of the central questions by a different route. For some time now, I’ve been writing critically about John Locke and his propertarian theory of liberalism. Increasingly, I’ve come to the view that Locke is best seen as an American rather than an English political theorist, even though he was an absentee owner rather than an American resident.

Further, while his writings appear liberal if interpreted in the English context, and if attention is focused on the passages where he is seeking to diminish the power of the English monarchy, his crucial contributions to the theory of propertarian liberalism are his justifications of expropriation and enslavement in the American context. The combination of the two made him the ideal theorist for those who wanted a Declaration of Independence that justified rebellion against the British monarchy, in combination with rule by a slave-owning aristocracy in the newly independent country.

I’ve made a start to spelling out the arguments in a piece for Jacobin magazine, entitled John Locke Against Freedom, which has given rise to some interesting discussions on Facebook, Twitter etc. Chris Bertram has raised some effective criticisms, and hopefully will spell them out in more detail later on. A couple of notable points, with partial responses

* I’ve overstated the extent to which Locke’s influence was confined to the American context, although it remains clear that his political theory mattered more in that context than in England

* Even if Locke himself advocated and benefited from expropriation and slavery, it’s not obvious (as I assert) that his theory of classical liberalism necessarily entails these things. I plan to spell out the argument in more detail soon.

Chris Berrtram at Crooked Timber has already pointed out the failure of the core European institutions in their response to the global financial crisis. One excuse that can be made for these institutions is that they are still in the process of development, and were ill-prepared, intellectually and institutionally, for an event so far outside their experience. The ECB and EC developed in a period when controlling inflation and stabilizing government debt were the key imperatives, and they responded to the crisis accordingly.

No such excuse can be made for the third member of the Troika, the International Monetary Fund. The IMF has understood from the start that the austerity policies it has imposed are economically unsound and a repetition of past failures. And yet it has been unwilling and unable to do anything else.

I’ve just signed a statement drawn up by a group of economists from the Toulouse School of Economics and the Université Paris-Dauphine, in advance of the current COP21 international negotiation. The aim of the statement is to encourage the parties to aim for a more comprehensive and economically effective agreement that would ultimately supersede the patchwork of voluntary commitments being put forward at present. While the commitments being made for COP21 represent a huge advance on the vague aspirations that emerged from Copenhagen, we should not lose sight of the ultimate goal of decarbonizing the global economy in a way that minimizes the economic costs by taking advantage of the power of price mechanisms.

From an Australian viewpoint, the most important part of the Call is Part 3: “Free rider” behavior must be hindered. The current government’s attempts to position Australia as a free rider on the efforts of others cannot succeed in the end, and will only do Australia harm.

If you’re a professional economist and agree with Call, you can sign it here. More generally, it’s open for discussion in the comments thread.

This is a statement released yesterday and endorsed by a group of unions and individuals, including me. It calls for a progressive alternative economic policy. It’s a statement of principles rather than a program, and essentially a restatement of the social democratic position that represents the best of the Australian labor movement, free of both dogmatic leftism and the capitulation to market liberalism we’ve seen over the past thirty years or so.

A program developed on these principles would, I believe, be electorally popular if only we could get it before the public. But the policy elite, including journalists and the press, remain under the spell of market liberalism, despite its evident failures. So, our public debate will continue to be dominated by silly pointscoring about debt, deficits and the need for “reform”.

The full text is over the fold (the link goes to a properly formatted version)

In an interesting sequence of events, Adani has halted engineering work related to its proposed Carmichael mine in the Galilee Basin.

Last week, it appears, Adani sent out notices to our major engineering contractors, including WorleyParsons, Aecon, Aurecon and SMEC, to stop work. A team of up to 40 engineers at WorleyParsons’ Brisbane office, which was working with Aecon on the rail joint venture, was among those pulled off the project. No public announcement was made.

Today, Adani is claiming that the stopwork was due to delays in regulatory approvals, a claim denied by the Queensland government. It’s worth noting that the new Labor government quickly resolved the biggest outstanding issue for Adani’s rail line and port expansion, namely where to dump the dredging spoil from the port. The solution was neat – they offered land that had been reserved for an expansion proposed by BHP Billiton, who have abandoned the idea, as have most of the other big players.

So, there are two possible explanations. One is that Adani is pressuring governments to hurry up with the threat of bad publicity about putting the project on hold, lost jobs and so on. But if so, why not make a big splash with the announcement. The other, more plausible in my view, is that Adani is preparing to cut and run, and wants to be able to blame government interference rather than its own misjudgement of the market.

* The warmest May on record globally
* The warmest May on record on land
* The warmest May on record on the oceans
* The warmest May on record in the Northern Hemisphere
* The warmest May on record in the Southern Hemisphere

Also, the warmest March-May, Jan-May and (I think) 12-month period in the record.

On the whole, though, I think excessive pessimism is a bigger problem than over-optimism. As I’ve argued before, I think lots of people have locked themselves into positions (eg advocacy of geoengineering, or belief in the end of industrial civilisation) that are based on the assumption that stabilisation is impossible. Many of these people are not open to evidence that stabilization is feasible, and even likely.

There’s a strong case that we should do better than 450 ppm, with a common ‘safe’ figure being 350 ppm. Since we passed that level some time ago, that requires a long period of negative net emissions, which cannot easily be achieved with current technology. Still, if net emissions are reduced to zero in the second half of this century, and some technological advances are made over the next fifty years (a plausible assumption if we put in some effort), even 350 ppm might be feasible.

Australia is dragging the chain under the Abbott government, but even Abbott seems to be feeling the international pressure judging by recent reports. With luck the last couple of years will turn out to have been a temporary detour in progress towards decarbonization.

Here’s another draft excerpt from my book in progress, Economics in Two Lessons. To recap, the idea of the book is to begin with the idea that market prices represent opportunity costs for the households and business who face them (Lesson 1), and then go on to explain why market prices won’t in general equal opportunity costs for society as whole (Lesson 2). A lot of the book will be applications of the two lessons, and this section is an application of Lesson 1.

As before, all kinds of comment and criticism, from editorial points to critiques of the entire strategy are welcome.